OSHE Panel Discussion THE FINANCIAL IMPACT OF HEALTH REFORM Presented By: Dan Smith, FHFMA, CPA Vice President, Chief Financial Officer Samaritan Health Services Survey Of Finance Leaders Top Concerns* Top Concerns: 1. Formulating a financially viable Accountable Care strategy 2. Understanding the impact of up-coming payment reforms (e.g. Value Based Purchasing) 3. Risk-based contracting (e.g. bundled payment) * Health Care Advisory Board: www.advisory.com FORMULATING A FINANCIALLY VIABLE ACO STRATEGY Steady Progression to Accountable Care Provider Cost Accountability The Challenge: How best to compete in the ACO era while protecting hospital profitability in the transition to total cost accountability PAYMENT REFORM IS HERE Value-Based Purchasing (VBP) FINAL RULE ISSUED ON 4/29/2011 Mechanics: 1. Payment withheld each year on increasing scale over next five years 2. Applies to base operating DRG payment Quality performance assessment Will undergo quality measure assessment across two domains: Process of care (12 measures) Patient experience (8 measures) Quality measures combined to form Total Performance Score (TPS) Redistribution of payment 3. Payment directly proportional to TPS score The bigger the TPS bigger the incentive payment Budget neutrality: ½ of hospitals earn back more than withhold, others earn back less A 3-DOMAIN SCORING SYSTEM FOR QUALITY MEASUREMENT Value-Based Purchasing (VBP) 1. Process of Care (70%) Score based on Achievement OR Improvement 12 Measures 2. Acute Myocardial Infarction (2) Pneumonia (2) Heart Failure (1) Surgical Care Improvement (7) Experience of Care (30%) 8 HCAHPS Survey Measures 3. Score based on Achievement OR Improvement AND Consistency Outcomes (FY 2014 Payment) 13 Measures Mortality Measures (3) AHRQ Patient Safety Indicators(PSIs), Inpatient Quality Measures (IQIs) Composite Measures (2) Hospital Acquired Condition Measures (8) KEY DATES FOR VBP IMPLEMENTATION Value-Based Purchasing (VBP) Still time available to prepare for performance periods! July 1, 2009–Mar 31, 2010 Clinical Process & Patient Experience Baseline period July 1, 2011–Mar 31, 2012 Clinical Process & Patient Experience Performance period July 1, 2011 – June 30, 2012 30-Day mortality measures for FY2014 VBP payments Performance period A PROACTIVE PURSUIT TO RISK-BASED CONTRACTING BUNDLED PAYMENT Definition: Provides a single global fee covering hospital & physician services for 1)discrete hospitalization or 2)care episode CMS- Acute Care Episode (ACE) 3-year demonstration under way 5 hospitals participating Bundles payment for cardiac & orthopedic DRGs Likely to expand bundled payment through national pilot in 2013: EPISODIC BUNDLING KEY DATES FOR BUNDLED PAYMENT 5 participants selected by CMS to begin 3-Year Demonstration bundling hospital & physician payments for inpatient acute care Bundled Services Pre-Acute Care Inpatient Acute Care 30 Days Post Acute Care 30-Day Readmissions Medicare will launch expanded Bundled Payment Pilot, a 3-year program expanding bundled payment across entire episode of care Acute Care Episode Demonstration (ACE) Medicare to expand Bundled Payment program if pilot successful before Jan. 1, 2016 2013 National Pilot on Payment Bundling KEY DATES FOR BUNDLED PAYMENT 5 participants selected by CMS to begin 3-Year Demonstration bundling hospital & physician payments for inpatient acute care Pre-Acute Care 3 Days Prior to inpatient stay Medicare will launch expanded Bundled Payment Pilot, a 3-year program expanding bundled payment across entire episode of care Inpatient Acute Care 30 Days Post Acute Care Episode of Care Medicare to expand Bundled Payment program if pilot successful before Jan. 1, 2016 30 Day Readmissions A PROACTIVE PURSUIT TO RISK-BASED CONTRACTING BUNDLED PAYMENT Risk-Based Contracting may have financial benefits if you currently have: High implant & device costs High length of stay High variation in care processes Weaker relationships with Specialists Case Rate/DRG reimbursement for Commercial Patients (spill-over effect) A PROACTIVE PURSUIT TO RISK-BASED CONTRACTING BUNDLED PAYMENT Key Factors Driving Bundled Payment Profitability Cost Physician Reduction Gainshare Price Discount Program Costs Spillover Effects Hospital Gainshare Market Share Gains Profits Losses COST ACCOUNTABILITY: FOCUS ON THE CARE PROCESS Medicare Margin Analysis Service Line Orthopedics General Medicine General Surgery Cardiac Services DRG 481 193 330 291 DRG Description HIP & FEMUR PROCEDURES EXCEPT MAJOR JOINT W CC SIMPLE PNEUMONIA & PLEURISY W MCC MAJOR SMALL & LARGE BOWEL PROCEDURES W CC HEART FAILURE & SHOCK W MCC Medicare Margin % -26.7% -21.7% -14.3% -9.4% HEALTH REFORM IS SETTING US ON A NEW PATH Strategic Implications: Persistent downward reimbursement pressure Cost containment an ongoing imperative to balance reimbursement pressure A new focus on productivity (not wages) to control cost Manage patient mix with shift to greater percentage of Medicare patients FOCUS ON FUNDAMENTALS Success under Reform will require: Quality Improvement Standardized Care Processes Cost Control Robust Reporting Operations IT Finance Quality Care Process QUESTIONS? ANSWERS?